In recent years, commodity exchanges have become more and more dependent upon electronic trading systems. The older manual methods by which trades were conducted have given way to advanced computer systems that have generally mimicked the manual methods of old. These relatively new electronic trading systems have many advantages over the manual systems, including the ability to provide such features as greater accuracy, reduced labor cost, real time market information, more efficient communications over greater distances, and automated record keeping. However, because the markets in which these commodities are being traded are so vastly different from their descriptions to their transaction methodologies, electronic trading systems are generally limited to specific markets such as futures, cash, oil, stock, securities, etc., and sometimes to specific commodities within a single market.
Illustrative of such electronic trading systems are those described in U.S. Pat. No. 5,270,922 to Higgins, U.S. Pat. No. 5,873,071 to Ferstenberg et al., U.S. Pat. No. 4,980,826 Wagner, U.S. Pat. No. 5,168,446 to Wiseman, U.S. Pat. No. 5,924,083 to Silverman, and U.S. Pat. No. 5,970,479 to Sheperd. The systems described in these patents are generally unable to accommodate complex financial instruments because, among other things, these systems apparently treat all financial instruments alike, and therefore, may be incapable of handling more complex financial instruments, such as derivatives, which require a judgment about the financial strength of the opposing counterparties. Trades conducted with some financial instruments such as derivatives create multi-year financial commitments, and therefore, mere credit limit or credit cap systems are insufficient as measuring and managing on institutions credit risk.
For example, derivatives were once considered by many to be too complex to be efficiently handled within an electronic trading system. Particularly, derivative products are typically define by certain terms and conditions, and each of the different types of derivatives products are defined by a different set of terms and conditions. For example, an FRA is defined by a start time, an end time, an over date, and a floating rate option, while an interest rate swap is defined by a start time, an end time, an over date, a floating rate option, a frequency of the fixed coupons, a basis, and a special rule(s) as applicable with some currencies. Accordingly, the variances in the specific information necessary to adequately define the different derivative products have apparently been deterrence to the development of an electronic derivative trading system.
The assignee of the present invention has developed and deployed what is believed to be the first and currently the only electronic trading systems for derivatives in operation. The system is called Blackbird™ (www.blackbird.net), and has received wide acceptance. Nonetheless, the transition to an all-electronic trading system for many derivative traders will most likely be gradual and take some time, relegating many derivative traders to deal with the inefficiencies of such manual trading processes.
For example, the financial markets, and particularly the over-the-counter (OTC) derivative marketplace, have been accessed principally by phone and fax for years. Once a transaction has been completed in this environment, both parties separately draw up their own internal ‘trade tickets’ without referring to the other organization. These tickets are then entered manually into the respective parties' computer systems for processing. This manual process introduces many opportunities for errors, which requires several layers of manual controls to verify and ensure that the precise details of the transaction to which both parties agreed are the same. This is particularly acute for OTC Derivatives due to the large number of parameters required to define a derivative.
Thus, a heretofore unresolved need exist in the industry for methods and systems that overcome the inadequacies of the manual trading processes without requiring end-to-end electronic trading.